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Operations transformation is a significant opportunity for investment funds to create value in their acquisitions when following a buy and build strategy. There are three stages that are critical to investors: the operational due diligence phase, the implementation of transformation plans of portfolio companies and the post-merger integration phase.

Challenges

The operational due diligence phase must highlight key risks and opportunities of the current situation and of the business plan. Characterised by limited access to time and data, this step requires a high level of expertise to identify and assess risks.
The next step is to ensure operations are managed effectively to maintain continuity during the closing phase. The identified levers for business improvement in the due diligence phase need to be studied in detail and implemented on the ground in collaboration with operational teams. These include cash optimisation, cost reduction plans, support function reorganisation, service level improvement, and adaptation of operations to support growth ambitions, amongst others.
Bringing in expertise in operations speeds-up the integration of operational teams, leaving the development of initiatives to the current management.
In build-up situations, Post-merger integration (PMI) phases should define and implement a targeted organisation structure, identify synergies and build a strategy to integrate the transformation on the ground.

How we can help

Argon & Co supports its private equity clients throughout the entire investment lifecycle; from operational due diligence to the implementation of competitiveness plans and PMI. We can help you with:

  • Operational due diligence
  • Operational process improvement including R&D, procurement, logistics, IT and support functions
  • Field services transformation
  • Cost reduction and cash optimisation

Private equity case studies

Logistic due diligence: furniture sector retailers

Logistic due diligence: furniture sector retailers

Two major players of the furniture and decoration sector in France are looking into a potential merger: Player 1 has 1,6€M revenue with 300 stores, player 2 has 2,3€Md revenue with 200 stores. They have similar distribution strategies (circa 50% volume centralised) but distinct store networks (number, surface and storage capacity per point of sale).

An assessment of potential synergies and risks from a merger are required in order for the investor to be able to provide its bid.

Our role

  • To identify potential synergies of implementing a common network for both players in France
  • To explain economical performance gaps between two players
  • To assess ongoing transformation plan in France
  • To alert on potential risks

Results

  • Explanation of main economical performance gaps: service level and fixed costs amortization discrepancies
  • Identification of risks to be mitigated worldwide such as challenging the rational underlying target distribution strategy and investigating 3PL contract terms
  • Sizing of potential synergies: -4% to -6% on logistic costs with a limited accessibility (sharing HQ teams, warehouses and stores, inventory and network nodes)

Due diligence: specialised distribution

Due diligence: specialised distribution

Due diligence: specialised distribution

An e-commerce company specialising in sport products, our client has shipped 1,5M parcels to customers from an operations base located in South of France.

The company has a steady yearly growth of +20% and simultaneously leverages two principal business models: flash sales on stock consigned by suppliers (60% sales) and flash sales on products already purchased and stored internally.

The project aim was to perform a Supply Chain Due  Diligence.

Our role

  • To determine the strengths and weaknesses of the current set up in regards to market best practices
  • To assess logistic assets durability taking in to account Business Plan inputs
  • To evaluate the annual change of logistics costs based on drivers evolution, as stated in the Business Plan

Results

  • Benchmark of current set up regarding service offer, logistic costs and teams, e-commerce drivers
  • Assessment of surface and people need based on Business Plan expectations and identification of target externalisation rate per offer
  • Calculation of warehousing and transportation costs, consistency check with management assumptions
  • Sensitivity analysis on the evolution of specific drivers of e-commerce (seasonality, units per order, split rate…)

Due Diligence: e-commerce

Due Diligence: e-commerce

Due Diligence: e-commerce

Our client is a global investment firm,  with a presence in four countries, which manages more than €1 bn across five separate funds.

It is investing in a German startup selling diapers on the internet to several European countries. This startup is planning to internalise its operations to reduce its logistics cost and follow its business plan.

Our role

  • Assess the startup’s Business Plan: review cost of operations trajectory, stock level evolution and profit coming from the internalisation (MTM methodology).
  • Analyse transition plan to bring internalise its operations in-house.
  • Asses the team’s ability to deliver its plan.
  • Evaluate potential mid term and long term opportunities.

Results

  • Agreement on 5 year Business Plan validation. Identification of several additional actions: suppliers panel diversification, pick-up service development, process automation etc.
  • Identified that the warehouse transfer project was not under control: no project management structure nor risk analysis.
  • Proposed several actions on the logistics strategy: 1. Warehouse opening in Spain to serve Southern Europe (3% logistics cost reduction) and 2. Offshoring current warehouse to CZ (5% logistics cost reduction)